90 seconds at 9 am: Strong dairy price bounce

Dairy prices rise strongly; US CPI unchanged but factory output and home building rise; Fed talks up hike; China debates liquidity trap; UST 10yr yield at 1.58%; oil prices up again, gold up; NZ$1 = 72.8 US¢, TWI-5 = 75.6

17th Aug 16, 7:26am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news of audible sighs of relief in the NZ dairy industry.

This morning's dairy auction brought strong price gains across the board. Overall, prices were up +12.7% in USD terms and up and equally impressive +11.9% in NZ dollar terms. Even better, the key wholemilk powder price was up +18.9% to US$2,695/tonne and this is the highest WMP has been since October 2015. Remember, in the meantime it sank as low as US$1,890/tonne in February this year, so from that low, it is up more than +40%.

Butter and cheese prices also rose strongly.

These higher prices are also on rising auction volumes, the highest since August 2015. Behind today's gains are two drivers; commodities generally are up in price, and secondly EU milk volumes have peaked and are expected to fall further from here. And US milk volume changes are no real threat.

Today's rise is the first tangible evidence that some analyst's 2016/17 milk payout forecasts of up to NZ$6/kgMS are on track. That will be a significant recovery from the expected 2015/16 payout level of NZ$4.25/kgMS.

In the US, consumer prices were unchanged in July on falling petrol prices, but solid gains in industrial output and home building suggested a pickup in economic activity that could allow the Federal Reserve to raise interest rates this year.

In fact, one (non-voting) Fed member said we could get two increases in 2016, the first as early as next month. And the influential head of the NY Fed also said a September rise is on the cards. They apparently see this month's strong rise in oil prices and the strong US labour market numbers both raising core US inflation well above what has been reported for July today.

The RBA's Genn Stevens said overnight that the US should just get on with it; the world is ready for more US rate hikes he says.

These hints of one or two rate rises are affecting Wall Street equities today, which are down -0.5% in afternoon trading. The US dollar is up although the Kiwi is stronger yet.

In China, we are seeing a rare divergence of opinion between two officials. Recently the chief statistics boss of their central bank warned that they may be in a "liquidity trap", one where stimulus money is hoarded by companies rather than being invested in the economy. China's money supply data strongly suggests that is exactly what is happening at present. But today higher up central bank officials are strongly refuting the suggestion. China's official organisations are not known for any form of disagreement on data interpretation. That statistics official may not be long in his role now.

In New York, the UST 10yr yield is higher again today at 1.58%.

The US benchmark oil price just keeps on rising and is now just over US$46.50/barrel and the Brent benchmark is just over US$49/barrel.

The gold price is also up about US$9 and now at US$1,349/oz.

The Kiwi dollar will start today stronger on the dairy result at 72.8 US¢ and its highest in more than a month, at 94.5 AU¢, and at 64.6 euro cents. The TWI-5 index is now at 75.6 and up about ½c.

If you want to catch up with all the local changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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45 Comments

by Undecided_Voter | 17th Aug 16, 8:15am 1471378512

Well that's great! the dairy industry is saved!

by The Oracle | 17th Aug 16, 9:05am 1471381530

XYZ

by JB | 17th Aug 16, 10:41am 1471387260

Prices are up - but sadly the debt remains as it does !

by sharetrader | 17th Aug 16, 8:17am 1471378636

funny how other RB are calling on the FED to raise, is that so they don't feel comfortable lowering their own rate time after time.
ZIRP has not led to sustainable growth anywhere, time to try something else

by dictator | 17th Aug 16, 8:31am 1471379487

A flood of money into all the wrong parts of the economy never creates productivity. The FED is looking for any excuse to justify an increase. They have public commentators saying that no one would be hurt by an increase to 0.5%. There's no actual recovery in the US but it's time they moved away from their current madness.

by PocketAces | 17th Aug 16, 8:22am 1471378921

Awesome, now we can get back to the serious business of converting every square inch of land to dairy and cranking up production of WMP and fouling the environment.

by Kakapo | 17th Aug 16, 8:56am 1471380973

Let us again worship the Golden Cow!

by The Oracle | 17th Aug 16, 9:03am 1471381438

... but to do so we really need to suck all the cubic metres out of the Rakaia... some fresh water still makes it to the Pacific, what a waste.

by murray86 | 17th Aug 16, 10:10am 1471385418

What about the Hawkes Bay? Farming intensification polluting water supplies beyond being fit for human consumption? What is the limit that our land and resources can handle? It's not All hail the Golden Cow it's all hail the almighty dollar!

by childofthesun | 17th Aug 16, 10:44am 1471387499

The Ruataniwha dam is mere ideological nonsense. A massive tax payer subsidy to landowners and users who wouldn't be able to justify such an investment themselves on commercial terms. The biggest joke is that the HBRC (their investment arm is responsible for dam investment) is supposed to be the guardian of the environment and responsible for monitoring nitrate levels post dam completion. Truly banana republic stuff.

by sharetrader | 17th Aug 16, 10:04am 1471385048

But don't we need that land now to build houses on,
as JK would say another sign of success land needed for two purposes what to do what to do
I know we will look into it, formulate a long term plan and wait to see what happens

by David George | 17th Aug 16, 8:35am 1471379749

That's great news about the lift in Dairy, the rural economy is suffering badly so hopefully this is a sustainable result.
The land of milk and honey! What's this?
One-third of New Zealand children, or 300,000, now live below the poverty line – 45,000 more than a year ago. Unicef’s definition of child poverty in New Zealand is children living in households who earn less than 60% of the median national income – NZ$28,000 a year, or NZ$550 a week. The fact that twice as many children now live below the poverty line than did in 1984 has become New Zealand’s most shameful statistic. “We have normalised child poverty as a society – that a certain level of need in a certain part of the population is somehow OK,” said Vivien Maidaborn, executive director of Unicef New Zealand. “The empathy Kiwis are famous for has hardened. Over the last 20 years we have increasingly blamed the people needing help for the problem.

“If you can’t afford your children to have breakfast, you’re a bad budgeter. If you aren’t working you’re lazy. But our subconscious beliefs about some people ‘deserving’ poverty because of poor life choices no longer apply in today’s environment. We have to ask ourselves as a society, are we really prepared to let our children grow up this way?” For a third of New Zealand children the Kiwi dream of home ownership, stable employment and education is just that – a dream. For poor children in the developed South Pacific nation of 4.5 million illnesses associated with chronic poverty are common, including third world rates of rheumatic fever (virtually unknown by doctors in comparable countries like Canada and the UK), and respiratory illnesses.
https://www.theguardian.com/world/2016/aug/16/new-zealands-most-shamefu…

by dictator | 17th Aug 16, 8:32am 1471379573

By tolerating child poverty and homelessness it just shows that New Zealanders are horrible people.

by PocketAces | 17th Aug 16, 8:34am 1471379698

Actually, what bubbles away under the surface, barely, in this country is racism, directed particularly at Maori.

by DFTBA | 17th Aug 16, 9:59am 1471384759

hear, hear.

And there are lots of politicians cashing in on that sentiment, WP being one of them (although he is Maori himself, he soothes his white constituents with lots of anti-treaty rhetoric)
.

by Uninformed Hillbilly | 17th Aug 16, 10:28am 1471386488

What should the 'racist white' people , as you say , do to square up the debt?

by Uninformed Hillbilly | 17th Aug 16, 2:37pm 1471401433

Would this help
https://saboteur365.wordpress.com/2016/08/15/soros-puppet-tim-kaine-whi…
Yay

by DFTBA | 17th Aug 16, 10:25pm 1471429502

Honouring the Treaty of Waitangi would be a good start.

by David George | 17th Aug 16, 8:44am 1471380257

“New Zealand is ashamed of us, they want to forget about us,” says Saitu, aggressively wiping tears from her eyes. “New Zealand doesn’t want my children.”
I am so ashamed we have allowed this to happen, these are not our values this is not the country I grew up in.
This globalised neo-lib corporate controlled country is turning into a disaster for large numbers of what were happy healthy productive people. And don't get me started on the amount of low skilled immigrants.

by KH | 17th Aug 16, 11:39am 1471390754

We have lots of poverty in New Zealand, but the Unicef definition of it is plain stupid.

by murray86 | 17th Aug 16, 10:06am 1471385212

Looking at the commentary on this post no one questions the Government's economic policies of the last 20 - 30 years that have created this mess. how about a constructive discussion on what policies would correct the mess currently and it's direction (downward)? We are 18 months out from an election, why don't we try to get a message out on a) what the voters expectations are of our MPs and what policies might be effective?

by dictator | 17th Aug 16, 10:35am 1471386904

There are a long list of problems. If we start with the problems created by the current Government and work backwards it would be positive and productive.

First we need to roll back the legislation that is designed to remove as many people from benefits as possible. Cutting off benefits has left people begging on the streets, some I see just sleeping on the footpath when I finish work late.

Unfortunately once people are made homeless it's difficult to get people back to regular life so we'll be stuck burning money trying to fix the issues.

Next we need to move children out of poverty. If we don't we are going to have a generation that, to put it bluntly, will be completely fucked due to malnourishment, and poor education due to living in cramped conditions.

Then we need to stop WINZ from putting those on benefits (in the bottom 3% of income in the country) into debt. This is the unethical behaviour of a loan shark and contributing to creating effective slavery. The techniques that WINZ applies are the same that were used to put families into debt in Africa and as a result people would sell their children to get out of debt. Creating debts to create slaves is an abuse of human rights.

We also need to change the attitude within all Government departments. They actually don't give a crap about anyone they deal with or doing their jobs properly. The attitude needs to change or there are managers that need to be cleared out of the public service.

We need a review of RBNZ activities as they are creating an asset bubble without taking sufficient action to deal with it. Instead they have lowered the OCR which has done nothing.

These are just a few thoughts on what would improve NZ both financially and as a society.

by murray86 | 17th Aug 16, 11:18am 1471389517

What about jobs? The current situation is kids leaving school cannot look to careers if they are just averagely educated. They end up damned to part time minimum wage work with poor conditions, few prospects and bugger all hope! The current Government is importing labour at the cost of our own! How do we fix that? Labour don't seem to have any answers either?

by dictator | 17th Aug 16, 12:19pm 1471393146

I don't focus a lot of jobs and migration myself. However the current rate of migration is dividing our GDP between a larger number of people. We all get less wealthy as a result. This does need to be addressed as the rate is too high at the moment and it's just used to conceal underlying problems.

Jobs are a problem everywhere as there is no real economic recovery since the GFC. There's too much overproduction and excess capacity. What I would specifically target is driving more people into service sectors targeting export. Specifically content creators, online retailers, etc. Selling books, games/media or selling products via amazon and similar services to foreigners would be highly effective. The overheads are low and the income is mostly profit. More developers or creative content producers not IT support building PCs.

The other issue that more directly affects what I do is the heavy constraints and restrictions on building consents. Local Government is holding up a lot of consents over pretending to process consents. All the held up consents are jobs that don't exist, work and productivity that is delayed until a future date. Less restrictive consent processing would create an increase in demand for both skilled and unskilled workers.

While saying this makes me cringe but pointing more people towards productive tertiary education. We still need people in artistic and creative pursuits but we seem to be overflowing with them. Providing more funding towards science, medicine and engineering would be positive and restricting funding to courses that are producing 3-5 times more graduates than what are needed. To counter some of the guilt of making a choice like this I would recommend creating adversarial arts funding so that artists can make a living criticising our society.

Provide tax cuts for R&D. This needs to be conditioned on product/productivity/patent/research paper production and have environmental controls in place. There are a lot of companies that want to carry out R&D and would employ people which means income tax and GST collection.

There are probably many other numerous ways of providing more jobs or creating a more productive working population. Even High School seems too orientated towards making obedient factory workers when we barely have any factories. There should be a way of adding creative design to high school in such a way that it's applicable to mix with any other subjects, whether accounting, chemistry, metalwork, cooking etc. Have students leaving high school be in the mentality of building businesses instead of being an uninspired employee.

by murray86 | 17th Aug 16, 2:46pm 1471401960

Now you're talking! This is the kind of discussion this site should foster. Great stuff. And largely agree with you.

by David George | 17th Aug 16, 11:52am 1471391548

Hear hear Murray. As I see it there have been two broad areas of failure, both of which will be enormously difficult to counter: firstly, exposing unprepared people to the full force of globalisation, corporatisation and high levels of unskilled immigration and secondly a dripping wet social welfare operation that incentivises an unproductive lifestyle and the loss of personal responsibility.
Suddenly being forced to compete directly with several billion additional ultra low wage workers and the consequent loss of low skilled work paying a living wage has been a disaster akin to actually having them within our country. This current lot, not feeling they've done enough damage already then set about actually bringing them physically here to truly skewer the prospects of our workers. Bill English reckons Kiwi workers are useless hence the need. Surely, if anyone is able but aren't prepared to get along and do a decent days work then there should be no benefit - end of story. We should never have been led to believe, well intentioned or otherwise, to expect any other outcome.

by murray86 | 17th Aug 16, 12:19pm 1471393163

Are immigrants low wage ones? What will happen when their expectations rise? What would happen if the minimum wage was higher? What about manager v worker wages. Is the gap growing? is it justified? Why? What about standard of living?

I don't believe this is about the low end making poor choices. i suggest it is more about economic policies that has dis-empowered the majority in the low to middle ability grouping of the population, giving them little choice but to accept some form of slavery.

by DaveB1978 | 17th Aug 16, 10:50am 1471387817

That measure of poverty is stupid. If everybody had their income multiplied by 100 and prices stayed the same, the same number of people would be in poverty. Poverty would be anyone earning less that $55k a week or $2.8m a year. It is a measure of inequality, not poverty. Poverty should be defined as a dollar value not a percentage of the median wage. It also needs to factor in things like government benefits like income related rent for state houses. $550 a week with no rent to pay is quite different to $550 a week with $500 in rent to pay.

Based on the poverty measure above, I probably grew up in poverty. My parents didn't work from when I was 12. The only taxable income they received was from investments. Dad got a company pension but that wasn't considered income for tax purposes or required to be declared as income. They had plenty of money and no debt. They would have struggled if they had to pay a large mortgage or rent.

by David George | 17th Aug 16, 12:06pm 1471392395

Not sure how they arrived at that figure either but it is country specific so one would assume that government top ups would be included. One thing that is for sure though is that someone could not hope to maintain a house and family and all that goes with it on our median income of around $30,000 pre tax. OK, there might be say 10% that are borderline completely useless but half the population on less than a living wage?

by dictator | 17th Aug 16, 12:32pm 1471393967

I grew up in poverty as well. One parent with a house, no debt. That improved over time but I didn't have a whole lot of stuff as a kid. Low spending, careful selection of my education made sure I didn't return to poverty.

by redcows1 | 17th Aug 16, 12:49pm 1471394972

House, no debt. Definitely not poverty. Debt is definitely a creator of poverty.

by Stephen Hulme | 17th Aug 16, 8:55am 1471380912

Dudley:

“We are looking for growth in the second half of the year that will be stronger than the first half,” Dudley said. “I think the labor market is going to continue to tighten, and in that environment I think we are getting closer to the day where we are going to have to snug up interest rates a little bit.” Read more

WSJ:

The housing recovery that began in 2012 has lifted the overall market but left behind a broad swath of the middle class, threatening to create a generation of permanent renters and sowing economic anxiety and frustration for millions of Americans…

But most of the price gains, economists said, stem from a lack of fresh supply rather than a surge of buyers. The pace of new home construction remains at levels typically associated with recessions, while the homeownership rate in the second quarter was at its lowest point since the Census Bureau began tracking quarterly data in 1965 and the share of first-time home purchases remains mired near three-decade lows. Read more

Alhambra:

The Journal leaves undisclosed this critical incongruity, the “lack of fresh supply” that is creating a bottleneck into which prices zoom ahead in the upper tiers while those in the lower tiers, including this new “permanent” class of renters, are forced to watch anxiously from afar. The most the article offers for an answer to this enormous disparity is, “damaged credit, swelling student loans, tough credit standards and a dearth of affordable homes.” Why is there a “dearth of affordable homes”?

Basic economics demands that rising prices coupled with a supply problem equals suppliers rushing to cash in. In other words, home construction in the lower end starter homes should be booming to fill up this obvious vacuum; it isn’t. The latest construction estimates confirm that new supply remains at depressed levels that we usually find during recessions. Read more

by dictator | 17th Aug 16, 11:01am 1471388472

At ground level when helping people (mostly in the US) with financial problems they don't earn a lot of money. They have debts often related to medical expenses, loss of income while finding another job or they are a student with student loans both federal and private. Some dig the hole deeper ignoring their financial problems as they are often quite bad. When people come around to addressing problems there are often cash flow problems either due to mortgage payments but often $500 per month car payments because they bought too much car.

The process of digging them out of their financial problems usually starts with credit cards ranging from 15% to 33%. Then tackling 6%+ private student loans, and moving them into taking full advantage of retirement savings. Most I have helped resolve their debt problems on a timescale of 6 to 48 months. The cash flow directed to dealing with those debts isn't being spend on consumption or going into savings to buy a house.

Most "new" adults are stuck with debts once the graduate so they don't really become fully fledged consumers, investors or house buyers for many years. While it's not as bad here as student loans are interest free, but the minimum repayment combined with kiwisaver money being put away until retirement is taking money away from other economic activities. It's responsible but you have to question student loans as they should be adding to productivity, rather than punishing people for meeting the minimum expectations to enter the workforce.

by The Oracle | 17th Aug 16, 8:58am 1471381118

Great result for NZ, but lets not get ahead of ourselves - ASB's $6 payout forecast is very optimistic, $NZD bounce offset some of the gains. The RBNZ should've eased further instead of hurting the real economy further instead of giving those more aggressive central banks' exporters a free ride & implemented loan-to-income multiple restrictions on Auckland residential lending at the same time.

by Stephen Hulme | 17th Aug 16, 9:26am 1471382788

Lucky country cartel helps to minimise factors impacting upon deflation.

A lack of competition and cartel-like behavior has hiked the gas price for Australians, according to analysts. For the Japanese, Australian gas comes with a 60 percent lower price tag.

In a matter of the several months since May, the wholesale gas price on Australia’s east coast has surpassed that in Japan by as much as 65 percent, reports News.com.au, based on a survey by Australia’s Institute for Energy Economics and Financial Analysis. The analysis was made ahead of a meeting of state and federal energy ministers at the Coag Energy Council on Friday. Read more

by Colin | 17th Aug 16, 10:23am 1471386211

Good news on the dairy front but too soon to get too excited looking a the 5-year trend graph

www.globaldairytrade.info/en/product-results/whole-milk-powder

by childofthesun | 17th Aug 16, 10:27am 1471386462

Dairy - as Taylor Swift would ask "are we out of the woods yet?". I think not.

by jfree | 17th Aug 16, 10:36am 1471386976

http://www.radionz.co.nz/news/political/311149/statistician-denies-poli…

The easiest way to reduce unemployment...

by dictator | 17th Aug 16, 11:04am 1471388699

I have no confidence in Statistics NZ. They changed to manipulate their statistics many years ago rendering the information worthless. Instead of an apology Labour should make it their policy to restructure Statistics NZ.

by Kakapo | 17th Aug 16, 11:16am 1471389388

Excluding people hunting online is clearly absurd. Are they not counting people who visit the site, because that would make sense, as lots of employed people check out the listings but don't necessarily take it further, but if they're not counting people who actually put in online applications, then WTF.

by Cowpat | 17th Aug 16, 10:48am 1471387731

NZD enjoying the employment numbers

by Joe Public | 17th Aug 16, 10:56am 1471388175

jfree beautiful article mate ...

incredible... first they pressured LINZ and now Statistics NZ. Is any government institution safe ? every little way to look like they are doing a good job when in actual fact it appears it is just manipulation of data to suit their means.

How can you exclude those looking for jobs online ? Surely that is the way 95% of people look for jobs these days. There is no logical reason why in the age of the internet that this would not be counted when previously it had been. SHAME ON STATISTIC NZ. SHAME ON NATIONAL.
There are two possible reasons for why they did this
1. Incompetence by the head of Statistics NZ
2. National pressured them to do it

Would like to know what impact this would have on the figures.

"The Labour Party said the figures had been massaged by the government, because they no longer included people hunting for jobs online as 'actively looking for work'.
In June, Statistics New Zealand changed the official survey so that anyone looking at job advertisements on the internet were classified as not actively seeking work.
It said it would improve the survey, and make the counting of unemployed people more accurate.

But Labour finance spokesperson Grant Robertson said that was absurd, as the majority of people searched for jobs online, on sites such as Seek and Trade Me."

by KH | 17th Aug 16, 11:34am 1471390499

Hunting online is how it's done. A tsunami of applications is often the result if you as the employer lists there. Excluding those from the stats is absurd.

by Boatman | 17th Aug 16, 12:20pm 1471393221

Don't just assume this re-bound in dairy prices is going to last , it needs to be sustained for a reasonable trading period before we start bringing out the Moet en Chandon.

Quite simply commodity prices are all over the place right now , and the increases in oil, for example, still looks very shaky with huge oversupply , and China in a slowdown

by rastus1 | 17th Aug 16, 2:52pm 1471402362

John Oliver..the car bubble...laugh and cry at the same time.
"With high-risk subprime loans at a 10-year high in the auto industry, some experts are predicting a bubble burst eerily reminiscent of the 2008 mortgage crisis. John Oliver unpacked that troubling topic on Sunday's Last Week Tonight"
http://www.rollingstone.com/tv/news/john-oliver-becomes-used-car-dealer…